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UK Adult Care Report Suggests Tax Hike

by Robert Lee, Tax-News.com, London

06 July 2011


The UK's adult care system is in need of a substantial overhaul, according to a newly released commission report, but changes would need to be funded by a tax hike on those feeling the benefits of such measures.

The Commission on Funding of Care and Support, headed up by Andrew Dilnot, has published its final report, "Fairer Care Funding". This independent commission, set up in July last year, was charged with recommending a fair and sustainable funding system for adult social care in England. The report, released on July 4, suggests a cap on individuals' lifetime contributions to social care costs, after which the state would "kick in". However, in order to pay for such state involvement, a tax rise would be likely.

The number of those in England aged 85 and over is expected to double over the next 20 years, to 2.4m. Under the current system, first introduced in 1948, individuals with assets of over GBP23,250 have to contribute to any social care costs they require. Were Dilnot's recommendations to be implemented, this means-tested threshold, above which people are liable for their full care costs, would be increased to GBP100,000.

In addition, lifetime contributions would be capped. The report argues that, once the cap is reached, individuals would become eligible for full state support. It suggests a cap at between GBP25,000 and GBP50,000, with a specific recommendation of GBP35,000 as "the most appropriate and fair figure". Based on a cap of GBP35,000, the report estimates costs of GBP1.7bn a year.

The Department of Health has said that currently one-quarter of those over 65 can expect care costs of over GBP50,000, with one in ten experiencing costs of GBP100,000. Dilnot's reforms aim at ensuring that no-one going in to residential care would have to spend over 30% of their assets, in contrast to the extreme of 90% sometimes seen today.

Such sweeping changes would, of course, need to be paid for. Three recommendations are made for potential ways in which the government could fund these reforms. One is that it may choose to prioritize existing expenditure, but the other two focus on tax measures. On the one hand, the government could raise additional revenue through general taxation, or, on the other, it could introduce a specified tax hike.

According to the report, it would "make sense" for any such increase to be paid, at least in part, by those benefiting directly from the reforms. In addition, at least part of the burden should fall on those over state pensionable age. However, the report stresses, were the government to pick this option, it should raise a tax, rather than impose a new one.

If the government were to use taxation to fund the reforms, the report argues that it would then have to consider the impact of any tax hikes on different income and generational groups.

Dilnot said of the report: “The current system is confusing, unfair and unsustainable. People can’t protect themselves against the risk of very high care costs and risk losing all their assets, including their house. This problem will only get worse if left as it is, with the most vulnerable in our society being the ones to suffer. Under our proposed system, everybody who gets free support from the State now will continue to do so and everybody else would be better off. Putting a limit on the maximum lifetime costs people may face will allow them to plan ahead for how they wish to meet these costs. By protecting a larger amount of people’s assets, they need no longer fear losing everything.”

TAGS: individuals | tax | economics | public health | retirement | United Kingdom | health care | tax rates

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